Understanding Consumer Value in PAYGo Solar

How do providers reach larger numbers of low-income customers and deliver more value? A new study has inspired a few ideas.

Reaching the poor requires an explicit strategy. As many providers already understand, developing that strategy starts with a sharp focus on driving down hardware costs and obtaining operational efficiency. There are tradeoffs between profitability and affordability in the PAYGo model. This is evident in choices around loan tenor: longer loans lower monthly costs for customers, but also require providers to build extra years of financing costs into these loans. Longer loans also come with higher risk of default, a cost also passed to customers. There are also tradeoffs when it comes to the products that agents choose to sell most aggressively. When agents have an incentive to sell the largest systems, they may be satisfying higherincome customers and aspirational demand, while overlooking those who are able to afford - and who would really benefit from - only a basic solar home system. What incentives will drive agents to reach low-income customers?

Impact investors should keep in mind that reaching lowerincome and more remote customers entails higher costs and lower margins. This is especially true at the acquisition stage, even if there is a healthy longterm business case for serving these customers. Pressure to deliver high returns quickly can mean shifts to periurban and higherincome customers, which some providers have already reported doing.

Reaching and benefiting women will not be automatic. Rather than asking providers to simply market more to female customers, impact investors and donors could invest in research to explore and understand the business case for serving women. Questions to be explored might include the following: What product specifications could be an appealing entry point for female customers? What kinds of products would women like to buy as followon asset purchases? What are the potential implications of including both men’s and women’s names on credit agreements to help women build credit histories? What are the potential outreach and business implications of increasing the share of female sales agents within PAYGo companies?

Tailor provider operations to cash flow realities in the markets where they operate. For example, in areas with highly seasonal cashcrop production, it would be wise to market products months ahead of scheduled harvests, thereby allowing customers to plan. Offering customers large deposit payment plans that reduce the ongoing burden of payments during low season would also be attractive. Providers might expand their reach to lowerincome customers by marketing to laborers through cooperatives and formal companies and matching sales to the timing of salary and bonus payments. Similarly, marketing through savings clubs would allow customers to plan and make a large lumpy payment to begin using their devices, with smaller, more manageable recurrent payments to follow. Where networks are informal and only loosely organized - and where payments to customers are not already digitized - this can be a costly strategy. But there are clearly some situations where the scale of customer access justifies the coordination expense.

Simplify contract terms and communications to ensure understanding. The practice of checking in with new customers to ensure that they understand their terms should become an industry standard. Low literacy rates and agentbased sales are leaving too many clients in the dark over the terms of contracts they have signed. Providers can also improve how they communicate incentives and consequences for ontime payment. And, every provider should send customers confirmationofpayment messages and updated loan balance information after every payment.

Build and maintain customer trust. The financing arrangements that PAYGo providers have brought into low-income customers lives are powerful, and hold promise as a means of asset finance beyond energy. Longterm relationships with customers give providers a chance to amortize their relatively high acquisition costs. But, a longterm relationship with clients is predicated on trust. Many providers use professional, courteous communications through text and call centers. But they also need to clearly disclose contract terms, reinforce basic understanding through every payment interaction, honor their warranty promises, and offer customers a chance to continue growing and investing with them.

Communicate a realistic value proposition to customers, funders, and investors. Many providers deliver highvalue services to their customers, and most of the customers in this study were thrilled that this new service model was available in their communities. The study showed that what really mattered to customers - and what many providers are already delivering - was the ability to invest in a lifestyle transformation. That is important on its own - even apart from the potential to save money on energy. Because of price points that are higher than those of replacement energy costs, providers might not be reaching all of the poor today, and that is alright. Being open about today’s achievements makes it possible to think strategically about how to meet an organization’s goals and to have thoughtful conversations about the tradeoffs that may be needed to reach those goals.